Mini-version of Home Depot makes move on neighborhoods

Chain opens store in N.Y. that serves as prototype for a half-sized outlet

April 21, 2002|By Susan Chandler | Susan Chandler,SPECIAL TO THE SUN

It wouldn't be a weekend for Jay Swanson if there weren't some tinkering to do around the house.

The building engineer from Wauconda, Ill., gets satisfaction from jobs that strike fear in others' hearts. His idea of a good time is resetting a toilet or installing some closet bolts.

When Swanson tackles a task, he usually makes a run to a nearby Sears Hardware Store or Ace Hardware. He isn't crazy about either one. The prices strike him as high, the selections aren't huge and the service is just so-so.

If Home Depot, the retail giant of the home improvement biz, had a store in Wauconda, it wouldn't even be a close call.

"I'd forget about Ace and Sears," Swanson said.

Swanson may soon be getting what he wants. The Atlanta-based chain unveiled a new prototype store recently in Brooklyn, N.Y., that is half the size of a regular Home Depot and can easily be dropped into neighborhood areas.

A second neighborhood store is set for Staten Island, N.Y., in the fall and a third is coming next year to Chicago's Lincoln Park, where Home Depot has two full-size stores in close proximity.

"If you're Sears Hardware or Lowe's, it's time to get to work," said John Simley, Home Depot spokesman.

As home of the nation's two largest buying cooperatives for independent hardware store owners - TruServ Corp. and Ace Hardware Corp. - as well as the headquarters of hardware-heavy Sears, Roebuck and Co., the Chicago area may have the most to lose if Home Depot conquers the neighborhood hardware store business.

But consumers like Swanson will be the big winners. As Home Depot pushes deeper into urban areas, it will force other stores to sharpen pricing and provide better service.

It's going to be a fierce fight. After growing at a compound annual rate of 6 percent from 1995 to 2000, retail sales at home improvement retailers are projected to slow to 3.8 percent annually between 2000 and 2005, the National Retail Hardware Association says.

At first glance, the Home Depot in Brooklyn doesn't look that different from its overgrown siblings. Merchandise is stacked high on utilitarian shelves. The floor is concrete. The ceiling is white metal.

Yet the scale is different. The ceiling is two stories high. It has a handful of checkout lanes. Mixed in with Home Depot's typical tubs of joint compound and Black & Decker drills are Tide detergent, portable lamps and Maytag washers and dryers.

What's missing? Pressure-treated lumber and 12-foot sheets of drywall. Customers or contractors interested in buying those can place orders to be picked up or delivered from one of two nearby Home Depots.

To get a neighborhood store right, one must understand the neighborhood, experts agree. Home Depot appears to have done its homework. Managers have studied Brooklyn's demographics, driven its streets and talked to its residents, a mix of homeowners and renters.

The result: The new store offers a custom service to replace doors with rounded tops, a prevalent design touch in this southern part of Brooklyn. To accommodate the area's Orthodox Jewish residents, Home Depot has hired experts in designing kosher kitchens.

In Brooklyn, one would expect the new Home Depot to receive less than a warm welcome from competitors such as Mazzone True Value Hardware, a family business in its third generation.

Not so. Matthew Mazzone said he isn't concerned about the impact on his business, which caters to owners and renters of century-old brownstones in the Carroll Gardens section of Brooklyn, many of whom don't own cars but are constantly renovating their vintage homes.

At 61,000 square feet, the new Home Depot is hardly a "neighborhood" hardware store, he points out. Mazzone True Value does business in a tiny 1,000 square feet of selling space.

Reinforcing Mazzone's confidence is his record in the trenches: A full-size Home Depot opened in Brooklyn four years ago. "Everyone told me the same thing: If you can get through the first year, you'll be fine," he said.

The sages are correct so far. After declining slightly in the first year, Mazzone's sales have increased by double-digit percentages in the past two years.

Ace Hardware executives also say they aren't intimidated by Home Depot's plans.

"You can either own service or price," said Ken Nichols, vice president of retail operations for Oak Brook, Ill.-based Ace. "Home Depot has been successful in owning price, but after megamillions of advertising dollars touting service, they've never been able to deliver it."

That doesn't mean Ace isn't paying attention. The buying co-op is eager to study and understand the new concept in order to help its 5,100 members better compete, Nichols said.

Skepticism is fine, retail consultants say, but retailers that convince themselves that the Home Depot threat is minimal are kidding themselves.

"A half-size Home Depot will be a price killer," said Sid Doolittle, partner with Chicago's McMillan/Doolittle. "They will be lower-priced than Ace and True Value. There is no middleman there. The stores will be supplied direct."

Added George Whalin, president of Retail Management Consultants: "There are going to be some folks hurt. Home Depot is very formidable. They have great technology. They don't run out of things."

And there's little objective evidence that Home Depot is turning off shoppers with poor service, retail experts say. Home Depot consistently scores high with consumers in terms of service, said Chris Ohlinger, president of Service Industry Research Systems, a retail market research firm in Kentucky.

Susan Chandler is a reporter for the Chicago Tribune.

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